Difference between objectives of Full Employment and Economic Growth

Full Employment and Economic Growth:

The objectives of full employment and economic growth should be distinguished from each other. The following are the important points of distinction between the two objectives.

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(a) Full employment implies exploitation of job opportunities by lifting the actual production frontier up to its maximum limits under the constraint of available resources. While economic growth means creation of more employment opportunities by raising the potentialities of production frontier by developing additional resources.

(b) Full employment is a static notion. It refers to the full utilisation of existing capacity of the economy with given productive resources, technology and production methods. Economic growth, on the other hand, is a dynamic concept. It implies an enhancement of productive resources through technological advancement, exploitation of new fields, new territories, new methods etc. It involves uplifting the county’s production possibility frontier as a whole.

(c) Full employment objective is relatively a short span phenomenon. It aims at economic stabilisation through the elimination of cyclical fluctuations that are faced by a advanced capitalist economy. Economic growth, on the other hand, is a long­-term objective of monetary policy.

Its aim is to improve the standard of living of the people, to remove poverty by increasing the level of income, output and employment in the economy. This objective is largely adopted by governments of underdeveloped countries. However, there is no reason why an advanced economy should not adopt it.

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(d) In technical jargon, the full employment objective implies raising the actual output schedule of a country to its production possibility frontier with a reasonable degree of economic stability. The economic growth objective, however, implies raising the production possibility frontier itself, together with the actual output schedule. It involves structural changes.

This is what Whittlesey wants to convey when he says that “the ideal output under full employment objective is the country’s economic potential at the prevailing level of technology, while under the economic growth objective, it is the country’s economic potential at a progressive level of technology and specially at a level which progresses in an ideal manner.”

(e) Full employment objective lays stress on the maintenance of effective demand; thus, during a depression it implies correcting the deficiency of demand and when there is inflation due to excess demand, it implies curbing it. The objective of economic growth, however, stresses on increasing the volume of the complementary resources (land, capital, etc.) essential for securing the productive employment of available labour rather than on the maintenance of effective demand as such.

Thus, policies aiming at full employment and those aiming at growth are not necessarily identical and obviously a separate set of measures may be required in order to serve the cause of growth. While it is broadly true that full employment stimulates growth and unemployment hinders it, in certain circumstances, the effect of full employment on costs and prices as well as on the morale of employees is liable to be very harmful to growth.

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Moreover, the end of full employment is usually served by short-run measures which disregard long-term requirements. For instance, the creation of uneconomic industries for the sake of providing employment is contrary to the requirements of growth because it does not make the best possible use of the productive resources.